India Inc’s revenue to double in Q2

Mumbai: India Inc’s revenue growth for the quarter ended September 2018 is likely to almost double from the corresponding quarter last year on the back of low base and higher realisation for steel makers.

However, rising input cost due to higher crude oil prices and falling rupee could impact margins across the sectors, rating agency CRISIL said.

According to the ratings agency, corporate revenues are expected to log a robust 12.1 per cent year on-year growth from 6.4 per cent registered during the same period last year.

Retail, FMCG and automobiles will benefit from the low-base effect caused by the rollout of the Goods and Services Tax in the second quarter of fiscal 2018. While makers of steel and aluminium, and coal miners will benefit from improved sales realisation, higher volumes will help cement manufacturers.

Investment-linked sectors such as housing and capital goods have also been supportive because of public spending.

“Demand recovery is expected to be driven by discretionary, consumption-led sectors such as airline services, automobiles, fast-moving consumer goods (FMCG) and retail. While automobiles are expected to see a 4 per cent growth in sales, airline services should see passenger traffic rise 16 per cent,” said Prasad Koparkar, senior director, Crisil Research.

However, Crisil noted that higher crude oil prices and falling rupee are also skewing the input cost math for companies. Crude oil is up 45 per cent YoY in the second quarter, while the rupee, which had depreciated four per cent in the first quarter, has lost additional 9 per cent in the second quarter.

Additionally, domestic prices of coal, long steel, flat steel and aluminium are expected to rise 15 per cent, 14 per cent, 17 per cent and 12 per cent, respectively, YoY. That would add to the cost pressure for end-use sectors.

According to Crisil, the aggregate operating margins would be up 5-10 basis points (bps) in the second quarter, but this would be primarily because of the performance of steel makers.

“Shorn of steel, that number would be plunging 70 basis points. And if cost pressures continue to rise, the gradual ascent in operating margins seen from the fourth quarter of last fiscal could reverse,” it added.

Airlines, automobiles, aluminium and cement will be the sectors bearing the brunt of rising cost of raw materials. Conversely, the rupee’s fall will prop revenue growth for export-linked sectors, especially IT and pharmaceuticals.

The forecast is based on Crisil Research’s analysis of 365 companies (excluding those from the banking, financial services and insurance, and oil sectors), which account for 65 per cent of the market capitalisation of the National Stock Exchange.